BHP top shareholders step up pressure for oil spinoff

Shenzi Petroleum development in the deepwater Gulf of Mexico. (Image courtesy of BHP Billiton.)

BHP Billiton’s (ASX: BHP) (LON:BLT) leading investors are pressing the company’s management not only to accept a proposal by activist investor Elliott Management to spin off its US petroleum business, but to fully demerge all of its oil and gas assets.

Speaking to Financial Times (subs. required), Aberdeen Asset Management, the third-largest shareholder in BHP’s London-listed arm, said a demerger of those assets was a good idea, adding it was “a matter of working out the economics.”

According to the paper, four of the top 20 shareholders in BHP’s UK division said they wanted the group to consider the suggested spinoff.

They're pressing BHP not only to accept a proposal by activist investor Elliott Management to spin off the US petroleum business, but to fully demerge all of its oil and gas assets.

Elliott’s proposal includes the suggestion of unifying BHP’s dual structure into a single Australia-headquartered and listed company, which according to the hedge fund manager could lift the value of BHP’s UK-based shareholders by 51% and by 48.6% those of the Australia-based investors.

BHP replied by saying the costs and associated risks of the proposed overhaul would significantly outweigh any potential benefits, calling the proposal “flawed.”

Elliott’s proposal of a primary listing in London would require the approval of Australia’s Foreign Investment Review Board, BHP said. The company has returned $23 billion in share buybacks since the dual-listed structure was formed in 2001 and paid out $56 billion of dividends, the miner noted.

The New York-based hedge fund, which owns about 4.1% of BHP’s London-listed shares and has rights to buy 0.4% of the Australian ones, insisted in its letter that despite owning mostly first-class quality assets, BHP as an investment has underperformed.

According to Elliott, most of that underperformance “has been driven by the incomplete status of management’s streamlining and value-optimization of BHP’s group structure and asset portfolio.”

In October last year, BHP billion in its petroleum business and also said it was considering additional investments of as much as $2.5 billion to expand existing projects and to possibly acquire new assets.

In February, the company revealed it had swung from loss to a $3.2 billion profit in the first half of the 2017 financial year. It also announced it was rewarding investors with an interim dividend of 40 US cents a share, higher than the 30 cents a share mandated by its policy.

BHP’s petroleum division, with operations in the US and Australia, is valued by analysts at between $26 billion and $32 billion.